Wednesday, November 23, 2016

With the
increased level of pet ownership, issues regarding “faux emotional support
animals” (a situation where an owner/tenant is bending or breaking the rules to
obtain a pet accommodation when pets are banned) and the need to attract more
tenants and buyers, many apartments, landlords and condominium associations
have started to adopt pet friendly rules.
If you are considering allowing pets as a landlord or association, you
should consider adopting special rules and regulations to control the living
and activity of any pet allowed in your property.

The starting
point should be the registration of any permitted pet. This would include an application describing
the pet, its weight, color, breed, sex, vaccination status, county registration
and spay/neuter information. Each owner
should also be required to provide a current vaccination and rabies certificate
from their local veterinarian.

A set of
rules should be provided to each owner with specific limitations and
restrictions. These could include a
requirement for annual vaccination, a limitation on the number of pets (and no
guest pets), a limitation on certain breeds; a weight limitation (many
owners/associations have a twenty to twenty-five pound weight limit); a leash
requirement; a specific place for pet defecation; a solid waste removal
requirement and provisions to prevent breeding, noise/barking; restrictions on
leaving pets on a balcony or outdoors; restrictions on leaving pets alone for
long periods; and a removal policy for any violent or aggressive behavior
against other owners and guests. All
Rules should be acknowledged that they have been read by a tenant/pet owner.

A pet deposit
is often a special condition of landlords that permit pets. The deposit should be separate and apart from
the security deposit. The deposit can be
either refundable or non-refundable.
Most deposits are in the $200 to $300 range. For Associations, a common area deposit can
be used to include damage caused by owners and their pets to common areas.

All pet
owners should be required to provide appropriate renter’s insurance which
should provide coverage for both damage caused by the pet and for any personal injury
caused by the pet, be it a simply excited dog knocking someone over or a vicious
cat or dog that bites or scratches someone on the property. Some basic renter policies exclude or limit
animal coverage, especially as it relates to certain breeds, so this issue must
be reviewed before allowing certain pets.

For associations
and apartment buildings that have had solid waste issues, it is now common to
require DNA registration of all approved pets and to adopt a fine for failing
to pick up after a pet goes on common areas.
As part of any approval of a pet, the animal’s cheek is swabbed and the
dog’s DNA is registered by a company that provides a monitoring service. If uncollected feces are found, the solid
waste is collected and a small sample sent to the testing company.

Once tested
and compared to the DNA information on file, the testing company can determine
if any registered dog is the responsible pet.
Once identified, the pet’s owner can then be fined for the violation
plus the cost of the test. The average
cost for a service like this is about $50 per pet at the registration phase and
$75-150 to test the feces to determine a match.
Combining DNA testing, fines for violations and Poop Bag Stations can
eliminate most issues relating to uncollected waste.

Proper
planning, deposits and rules can go a long way to eliminate most issues relating
to allowing pets. This will expand the
pool of buyers/tenants and prevent common problems from hidden pets, faux ESA
animals or unregulated animals in places where pets are permitted but no
procedures have been adopted.

Michael
J Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business
oriented law firm serving all of South Florida, with offices in Palm Beach
County. They specialize in real estate
and can assist landlords and associations in addressing animal issues. They can be reached at 561.594.1452, or at
mjposner@warddamon.com

Monday, October 31, 2016

Every home owner in the country wants to get as much as they
can for as little as possible. That is reasonable, but it can lead people down
some risky paths. One of those paths, which is quite commonly utilized by first
time buyers especially, is the hiring of an unlicensed contractor.

Some needed
home repairs and a simple web search leads a homeowner to get measurements from
a gentleman who shows up at your door. He is dressed reasonably nice for a
contractor (jeans and a polo), and all his construction equipment looks right.
He takes measurements, provides a quote that is almost too good to be true
(1/3rd less than the first contractor you called) and the next week he and his
crew are ripping out your kitchen sink or replacing the master bathtub.

What happens
when Mr. Contractor gets injured? It might seem “fair” that he’d have to pay
his own medical costs. Businesses should carry insurance, after all. Except
that without a license, your contractor cannot apply for a business license.
According to construction consultant Lyle Charles, “the reality is that home
owners often end up carrying that burden when the contractor is uninsured. It
is one of the dirty secrets of low-cost home renovations.”

In order to
become a licensed contractor, there are a few things a person must demonstrate
to the state a number of items, and usually take a competency exam. Contractors
must pass a contractor’s exam in order to acquire a contractor’s license. A
contractor must also carry insurance when you register as an LLC, or other
business entity. That insurance protects employees and the job site. To protect the public, Florida actively
pursues unlicensed contractors by performing sting operations in conjunction
with local police.

As you can
imagine, all this licensing and exam work takes time and costs money.
Contractors who charge more for their work have earned the right to do so
through state licensure. They carry liability insurance that protects you, the
homeowner, from the consequences of their on-the-job injuries.

Before you
hire that unlicensed contractor, stop and think about the potential hazards:

Natural
Disaster: If your home was recently damaged by a natural disaster, the
unlicensed contractor may not be able to perform the work legally. That could
limit your insurance settlement.

Property
Value: Someone unlicensed who performs major work, such as adding a room to
your home, could reduce the property value because the addition will not have
the proper permits or be built to the building code. Plus, homeowners are
required to disclose unlicensed/unpermitted work when selling their home.

Protection
from Injury: Not just of the contractor, but the surrounding area. If the
contractor drops a heavy tool on a car, for instance, whatever dent or scratch
is left behind might end up costing you for the repair. The same goes for
personal injury claims if that contractor hurts a neighbor.

Damages: If
an unlicensed contractor fails to complete the work, does it in a poor manner
or causes damage, the unlicensed contractor might disappear entirely, and often
cannot be found if you need to sue.

There is both
good news and bad news. Before we continue, it’s best to speak directly with an
attorney, as they will provide recommendations more directly related to local
laws you must comply with regarding permits and association requirements for
repairs. That said, there are some general guidelines you can keep in mind when
you’re looking for a contractor and considering going with someone who is
unlicensed.

You can file
a lawsuit against an unlicensed contractor if there are damages to your
property, or if he causes injury somehow (either to himself or someone else).
Being unlicensed is, in some ways, actually a bigger risk than whatever risks
come from the job itself. As a homeowner dissatisfied with a job, you can also
stop payment to the contractor or refuse payment altogether. Most unlicensed
contractors also do not write up agreements, so there is no contract that
details their responsibility. Prices change, homeowners refuse payment, and
accidents happen.

Generally, if
you try and sue an unlicensed contractor you will probably have to show the two
of you attempted to work out a solution between yourselves. It should not cost
you much more than a few thousand dollars in attorney’s fees to get some
representation on your side if you need it for a default (if the contractor
doesn’t show). You’ll have to wait a few years to collect, but once that
default is renewed you can send the bill to collections and hope for your money
to arrive.

If you decide
to file a lawsuit, consult an attorney familiar in construction law over
someone who is general practice. That expertise will come in handy, as the
intricacies of construction law require someone well versed.

Going with an
unlicensed contractor might sound great because you will save on the upfront
costs, but it can cost you in the long run. There is simply too much risk with
injury lawsuits, property damage and a lack of dispute resolution, to chance
hiring a contractor who does not carry a license.

Sunday, October 9, 2016

The dream of
home ownership is as American as hot dogs, baseball and apple pie. At least that was the theory until the great
recession that ruined home ownership for millions. With the economy mostly recovered, mortgage
interest rates at all-time lows and rents rising, is it now better, once again,
to own or rent.

Homeownership
levels continue to fall with the level of ownership hitting a 50-year low last
quarter. Currently only 62.9% of
households are owner-occupied. Ownership
levels are highest for seniors, and at an all-time low for millennials at 34.1%.
The decline is due to several factors

On strictly
financial basis, using a five-year period of ownership and making some basic
assumptions (your mileage may vary), renting versus owning is nearly a wash,
with homeownership slightly less expensive:

RentingOwning

Monthly Payment $1,350.00 $ 954.83

Taxes/Insurance 20.00 400.00

HOA Assessments 0.00 100.00

Maintenance 0.00 250.00

Monthly Costs $1,345.00 $ 1,704.83

Down Payment $50,000.00

Five Year Cost $80,700.00 $152,289.80

Less Interest on Down Payment (2%) ($5,204.40)

Less Increase in Value (3%) $(39,818.00)

Less Principal Reduction/Equity $(69,105.00)

Interest Expense/Deduction $520.40 $(7,636.80)

Plus Costs of Purchase/Sale $28,185.00

Total Cost $75,495.60 $63,915.00

This chart is
based on a $250,000 home, a $50,000 down payment, an association payment of
$1,200 a year, rent averaging $1,350 a month over five years, maintenance costs
of $3,000 per year, a sales price of $278,750 after five years, plus the renter
investing the $50,000 at an average of 2% and the homeowner’s home value
increasing at a rate of 3% per year.
Given these factors, the savings over five years is approximately $12,000. This includes costs of purchase of $5,000 and
costs of sale (including a real estate commission of $23,185).

Longevity: Determining
whether to rent or own is dependent on several important factors. First, how long do you plan to stay in your
next home has to be determined, because one of the best benefits of home
ownership is tied to longevity of ownership.
Our sample favors renting through year three, with each year thereafter
supporting buying.

One key
factor tied to longevity is how mortgage loans are front loaded with mostly
interest. Fixed Rate Mortgages are
amortized to provide a fixed monthly payment over the life of the loan. Initially the payments are mostly interest,
with only a small amount going to principal.
A typical $250,000 house with a $200,000 loan will only have principal
reduced by $19,000 if sold within the first five years. It takes nearly 20 years to reach a 50%
reduction in the loan balance.

Tax
Deduction: One benefit of homeownership
is the ability to deduct mortgage interest paid on loans to acquire and improve
the home. This can be worth thousands in tax savings during the early years of
a mortgage. However, many people do not
have enough deductions to make itemizing their taxes worthwhile, and this
benefit is lost if the homeowner cannot itemize their taxes.

Maintenance: One drawback of homeownership is the
requirement of maintenance of the home from lawns, to painting, to repairs and
replacements. Renters mostly rely on the
landlord to handle maintenance, repair and replacement costs. Homeowners have to bear the full cost, which
can be very expensive. A new a/c system
costs over $2,000, and a new roof can run from $7,500 to $30,000 depending on
whether its shingle, cement or barrel tile roof system.

Down
Payment: The down payment is the largest
bar to home ownership, especially for younger and first time buyers. Typically, the down payment is twenty percent
of the purchase price. This is a large
sum that may be difficult for many to accrue, and even the three percent down
payment on an FHA loan may still act as a bar when coupled with closing costs
that easily exceed $5,000. Renters only
usually need first last and security, which is far less than the full down payment,
but can be equal to the FHA down payment.
Taking the twenty percent down payment and investing in an indexed fund
instead of buying can often result in a substantial gain versus homeownership,
which has seen both large value increases and decreases in recent years (the
S&P has returned 78% over the last five years).

Portability. Renting is for a fixed term, customarily for
one year. Many leases provide a right to
terminate early for a two-month rent penalty (an attempt to make this a Florida
law did fail). This ability to move
quickly is often better for single and married couples without children. Having to move for a career opportunity as a
homeowner can mean carrying a mortgage and paying rent on two places until the
first owned home is sold.

Given the
initial costs, down payment, the burden of maintenance, the loss of the ability
to move quickly means that the decision to buy instead of rent can be difficult
for many people, especially if they are likely to need to move in less than
five years. Committing to longer term
ownership is when the decision becomes in favor of homeownership, ultimately
saving money in the long run.

Michael J Posner,
Esq., is a partner at Ward Damon, a mid-sized real estate and business oriented
law firm serving all of South Florida, with offices throughout Palm Beach
County. Michael specializes in real
estate law and business law, and can help sellers, buyers landlords and tenants
with their real estate issues. Michael
can be reached at 561.594.1452 or by e-mail at mjposner@warddamon.com.

Wednesday, August 24, 2016

In 2010, the Florida legislature changed Florida Statute Section
718.112(2)(l) to amend the rules regarding the requirement for retrofitting of
sprinklers in condominium (and cooperative buildings under 719.1055(5)(a)). The change removed the following key
provisions:

For
purposes of this subsection, the term "high-rise building" means a
building that is greater than 75 feet in height where the building height is
measured from the lowest level of fire department access to the floor of the
highest occupiable story. For purposes of this subsection, the term
"common areas" means any enclosed hallway, corridor, lobby,
stairwell, or entryway. In no event shall the local authority having jurisdiction
require completion of retrofitting of common areas with a sprinkler system
before the end of 2014.

This
change has sparked a controversy as to whether all condominiums are now
required to either retrofit sprinklers or vote to waive retrofitting no later
than December 31, 2016. This change was
intentional and by doing so the legislature specifically intended the law to
apply to all condominiums, not just high-rises. As this is state law, it trumps any local
limitation or requirement which would limit or not require such installation
for condominiums under seventy-five feet in height.

The starting point for compliance
is the Division of Florida Condominiums, Timeshares, and Mobile Homes, the
state body that regulates condominiums.
In its written statement on the issue the Division has stated that:

Condominium
and cooperative associations are required to report to the division certain
information regarding the membership vote to waive retrofitting requirements
for fire sprinkler systems and handrails and guardrails. If the association
does not waive retrofitting requirements, it must report the per unit cost of
retrofitting to the division

The Division
makes no distinction between high rise and low rise condominiums. As a result of the change in the law and the
Division not ruling that the law does not apply to condominiums below seventy-five
feet in height, it means that absent a change, all condominiums and coops must
either vote to waive retrofitting or start the retrofit process by the end of
the year and report their actions to the Division. As late as early July, 2016 Travis Keels,
deputy director of communications for the Florida Division of Condominiums
stated, “Generally speaking, the fire sprinkler requirement applies to all
residential condominiums.”

However, due to
contradictory laws relating to low rise sprinklers, there are now many voices
asserting claims that the law does not actually require retrofitting for low
rise condos/coops. The Florida State
Fire Marshall issued a statement saying that: “The Florida Fire Prevention
Code… requires only high-rise buildings that do not have exterior access from
each dwelling unit to be protected throughout by an approved, supervised
automatic sprinkler system.” However,
the Fire Marshall also recognized that their office “…cannot interpret the
provisions of Chapter 718.112, Florida Statutes.”

Senator Jerry
Ring, a sponsor of the 2010 legislation that changed the law, has also
commented on the issue. He stated, in a
letter dated July 28, 2016, to the Director of the Division of Florida
Condominiums:

It
is regrettable that the Division’s “interpretation” of a 6 year old statutory
amendment comes to light through a newspaper quotation a mere 5 months before
the opt out deadline expires, and at a time of year when many communities have
difficulty conducting business (let alone owner votes) due to seasonal
absences. While I recognize that the comments made were undoubtedly in good
faith, they are simply an incorrect interpretation of legislative intent. Due
to the amount of concern that this newspaper quote has generated, especially in
light of its timing, I am requesting that the Division issue a press release
consistent with the intent of the Legislature.

The problem
is while the letter is well meaning, it is not a change in the law, merely one
legislator’s interpretation of the intent of the law. Therefore, we are recommending that all
condominiums and coops start the process to waive retrofitting by either a
member meeting or a written consent to action.

The written consent allows for
votes to be collected from local and absent owners by signing a written
statement voting to waive retrofitting.
Interestingly, the Division allows even Associations that do not have
express power to approve matters by written consent to use this process, “Voting
by written consents or written agreements may be utilized by an association
regardless of whether the bylaws or the declaration specifically permit voting
by written consents or written agreements.”
In order to waive the costly installation, the vote must be made by the
“affirmative vote of a majority of all voting interests in the affected
condominium.” Now is the time act, as
sufficient votes to waive must be received no later than the end of the year.

Michael
Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business
oriented law firm serving all of South Florida, with offices in Palm Beach
County. They specialize in real estate
and can assist community associations in all legal matters including
retrofitting votes. They can be reached at 561.594.1452, or at
mjposner@warddamon.com

Wednesday, July 6, 2016

1. Deeds without
estate status: So you want to add dad, mom or a brother to your Florida
property, so you get a Quit Claim Deed from an out of state lawyer, an office
supply store or online, fill it out and mail in to be recorded. Three years
later they die, and when you go to sell you discover that in order to clear
their interest you will need to file an ancillary administration in
Florida. $3,000 and a few months later
you close and get to share the proceeds with their heirs. This can all be avoided by using the proper
language to effectuate what your intent is on that deed. If you want the property to go to everyone’s
heirs, do nothing, but if you want to be sure that the property goes to the
surviving grantees, simply add, “joint
tenants with full rights of survivorship, and not as tenants in common”
after the grantee’s name and upon their death, the title goes to the remaining
grantee without probate.

2. Grandma’s
Condo: If you own a second home/condominium in Florida and are a resident of
another state, you can avoid two probates by simply deeding your second Florida
property to yourself for life with a remainder to your chosen heirs. Then, when
you die, no probate is necessary. You
can even keep full control by adding Ladybird Powers to your Life Estate Deed.

3. Applying for
Homestead: Florida’s constitutional homestead is an automatic protection
arising as soon as you take residency of your Florida home. However, the statutory homestead tax break
requires that you apply by March 1 of the year after you purchase. Forgetting to apply will costs you about $500
each year, and you will lose a 3% cap on annual appraisal increases. If you
closed last year and did not apply, you can still submit an application and ask
for a late filing waiver.

4. Home
Improvements: Getting ready to sell your house but need some work done that
requires a contractor? If it is a short
job, you should change the automatic one year life of that Notice of
Commencement required for permitted jobs to the actual time needed to complete
the work. Otherwise, when you do sell
you will have to hunt down that contractor and possibly some subcontractors to
get release of liens, even though the job was done on one week and it has been
eleven months since your house improvement was completed.

5. Loan Payoff
Surprise: Many people are surprised at closing when their mortgage payoffs are
far higher than their last mortgage statement.
For example, if you borrowed $500,000 at 5% five years ago, and you are
closing August 10, (and you were told not to make the August mortgage payment)
and your August mortgage statement says you owe $448,866.09 in principal, your
closing statement could say you owe almost $3,000 more. That is because mortgages are paid in
arrears, meaning that the July payment you made was for interest in June. So at that August 10th closing they are
collecting interest on the principal balance from July 1 to August 10, plus a
week extra to cover mailing in the payment.

6. Mortgage
Insurance: Did you purchase your home with less than 20% down? Then you probably pay mortgage insurance
every month. The insurance is supposed
to stop once the loan amount equals 80% of your home’s appraised value. However, it is the owner’s responsibility to
request this relief. If you think you
have hit 80% mark, contact your lender, because each month you delay could
easily costs $83 per month for each $100,000 you borrowed.

7. Rubber Hoses: Go
in your laundry room and look at the hoses connected to your washing
machine. If they are black rubber then
(i) confirm you have flood insurance; and (ii) get in the car and go to Lowes
or Home Depot and buy braided stainless steel hoses in the same length. Installation is easy, turn of the water to
the washing machine, remove old hoses and install new hoses. Burst rubber hoses
are probably the number one cause of flood in homes. You do have flood insurance too? Many do not so take the time and do one of
the easiest fixes possible to protect your home.

8. Mortgage
Interest: Do you know what interest rate you are paying on your home
mortgage? Many people close on a loan
when they buy and then never refinance, throwing away thousands of
dollars. If you borrowed $300,000 ten
years ago at 6% you are paying $1,798 a month.
If you refinanced all $300,000, that full amount at today’s rate of
3.75% your payment would drop to $1,389 and after closing costs you would have
about $40,000 in your pocket. The
smartest move would be to refinance only what you owe for 15 years. Your payment would still be lower by $300 a
month and you would shave another five years on your existing loan.

Michael J Posner,
Esq., is a partner in Ward Damon a mid-sized real estate and business oriented
law firm serving all of South Florida, with offices in Palm Beach County. They specialize in real estate law and business
law, and can with these and other real estate mistakes (except the plumbing
tip!). They can be reached at
561.594.1452 or by e-mail at mjposner@warddamon.com

Friday, March 18, 2016

Emotional support animals have and continue to be a divisive issue in condominium communities, pitting the “no pet” contingent against those who desire to keep an animal to alleviate a disability. The issue of fake service and emotional support animals has led to the Florida state legislature enacting a new law that criminalizes parties who falsely claim to have a service animal under the Americans with Disability Act (“ADA”): A person who knowingly and willfully misrepresents herself or himself, through conduct or verbal or written notice, as using a service animal and being qualified to use a service animal or as a trainer of a service animal commits a misdemeanor of the second degree, punishable as provided in s. 775.082 or s. 775.083…

Unlike service animals under the ADA, the residential community issue falls under a separate law established under the Florida and Federal Fair Housing Acts (the “Act”). Federal lawsuits under the Fair Housing Act, arbitration claims with the Florida Department of Business and Professional Regulation and Administrative Complaints with the United States Housing and Urban Development continue to be filed, as communities struggle with addressing requests for a reasonable accommodation.

Two main issues continue to be raised in the cases being filed by owners and associations. First, is the person, in fact disabled such that the disability impairs or limits a major life activity. In many cases, the letters from doctors or mental health professionals fail to properly document or substantiate that a disability, in fact, exists. Instead, they describe certain ailments of the person they are treating without stating that the ailment rises to a disability that does impair a major life activity. The disability letter must be clear that a recognizable disability exists and that the specific disability significantly impairs a major life activity. For example, a statement from the medical professional that contains language similar to the following may be sufficient to meet the initial burden of the Act, “Due to (describe the disability), he has certain limitations which substantially affect the following major life activity, to-wit: (Describe how such disability affects the patient).”

The second test is that the animal in question must, in some fashion, alleviate the symptoms of the disability and the person making the request has a need for the assistance. The animal does not have to be specially trained depending on how the animal alleviates the disability. Some Associations will not approve an ESA without proof of special training and this can lead to a violation of the Act by the Association. The same disability letter should state what and how the animal alleviates the diagnosed symptoms, and the medical professional could include language such as, “In order to help alleviate these disabilities, and to enhance the patient’s ability to live independently and to fully use and enjoy the residential unit located within the condominium, I have prescribed an emotional support animal that will assist him in coping with his disability by the following assistance (describe how animal alleviates the disability). Assuming both tests are actually met, the Association, under the Act, is required to make a reasonable accommodation.

Several recent cases have addressed elements of these issues, but as these are ongoing cases without final resolution, it is not clear the ultimate outcome. In a truly tragic case between Alexander Peklun and the Tierra Del Mar Condominium, both sides moved for summary judgment in a reasonable accommodation case. The background of this case is what Plaintiff alleges led to the suicide of the disabled owner. In denying both motions, the United States District Court in December, 2015 entered an order that included several rules that may help clarify the obligations of owners and associations. First, a reasonable accommodation is not a lifetime grant, and an association has a reasonable right to request follow-up information. Second, not all ailments are “disabilities” that the Act was intended to protect. However, the court found that sleep apnea, did interfere with a major life activity and rose to a level of a protected disability. Third, the emotional support animal is not required to have task specific training (this issue is often confused, as was in the Peklun case, between a service animal, which is specially trained, and an emotional support animal).

In a Texas 2015 case (Chavez v. Aber), the United States District Court found that an employee of an owner can be found liable for violating the Act. The employee defended on the grounds that only the landlord corporate owner can be liable for violating the Act. The Court denied that motion, finding that if the employee assisted the owner in violating the Act by not making a reasonable accommodation (and taking affirmative action to threaten eviction, raise rents, etc.), then such employee can be personally liable. This case could be ultimately extended to Association Board members who abuse and harass legitimate homeowners seeking a reasonable accommodation.

As we can see, the law regarding emotional support animals is both confusing and evolving. If you are a disabled owner, it is best to provide good documentation so as to establish the required need for a reasonable accommodation. If you are an Association, it is best to establish, in advance, reasonable rules regarding emotional support animal requests, and to avoid discrimination claims by failing to properly review and approve such requests.

Michael J Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County. They specialize in real estate and can assist associations and owners in addressing emotional support animal issues. They can be reached at 561.594.1452, or at mjposner@warddamon.com

Monday, January 11, 2016

In 1988,
in an effort to keep older Americans in their homes, Congress passed the
Reverse Mortgage bill, which authorized the Federal Housing Authority (FHA) and
the United States Dept. of Housing and Urban Development to guarantee lenders
who made home equity conversion mortgages.
These specialized loans are limited to individuals 62 years or older for
loans secured by their primary residence, and for a loan amount that provides a
sufficient equity cushion so that at maturity the loan may be repaid. Reverse mortgages can be used on single
family homes, condominiums and certain manufactured homes.

Reverse mortgages do not require any
payment of principal and interest as long as the borrower is alive or resides
in the home as the primary residence.
Interest on the reverse mortgage (which can be fixed or adjustable)
accrues until the loan is repaid. The
homeowner/borrower must still pay all taxes, insurance and maintenance on the
residence.

This
waiver of payment is the main benefit of the program. For example, a homeowner with a $250,000
mortgage paying interest at 5.5% with fifteen years left will be paying
$1,419.47 each month in principal and interest. With a balance of $167,000
after fifteen years, and a home value of $400,000, a homeowner over 62 could
obtain a reverse mortgage of $191,200, pay off the earlier loan, pay all
closing costs (which are generally higher than most loans and one source of
complaints about reverse mortgages) and have about $20,000 available to pay
taxes and insurance (or a vacation).
After closing, the borrower will have the $1,419.47 in his or her pocket
each month, an amount that may mean the difference between selling the home and
keeping the home.

The funds
from a reverse mortgage can be received in cash at closing, or available as a
line of credit for future withdrawal.
The availability of a line of credit at closing requires that the
borrower have sufficient equity for the new loan (in many cases, paying off the
existing loan plus closing costs reduces or eliminates the amount available to
borrow). The proceeds from a reverse
mortgage are not generally considered income and are not taxable, and will not
affect social security or Medicaid benefits, but if the proceeds are held as liquid
cash, that sum could disqualify a person from certain benefits and should be
reviewed.

Loan
repayment occurs when the homeowner dies, abandons the home or defaults under
the terms and conditions of the loan (such as failure to pay taxes). For death or abandonment, the homeowner or his/her
family gets twelve months to sell the property to pay back the loan. If the loan is not paid back, HUD may proceed
to foreclose the loan, recover and sell the property to satisfy the debt. Since interest is accruing without repayment,
the value of the property may not be sufficient to pay-off the loan. Unlike conventional mortgages (recourse
loans), the borrower or the borrower’s estate is never liable for the loan or a
deficiency due to the property being worth less than the loan balance (a
non-recourse loan).

Since
their introduction, reverse mortgages have become popular; there are presently nearly
500,000 active loans. Originally a refinance only program, the law was revised
in 2009 to allow these loans to be used to purchase a new home, so long as the
borrower can pay the difference between the reverse mortgage loan amount and
the purchase price of the new home.

There are
several criticisms of the reverse mortgage program. High upfront costs are an issue and are frequently
not properly discussed with borrowers.
Interest rates are higher than conventional loans. Pressure sales tactics (including late night
TV ads) have encouraged seniors to take out reverse mortgages, spend the money
on vacations and gifts, without consideration of the ability to pay and
maintain the property going forward.

Some
elderly homeowners have been duped by the reverse mortgage/repair scam. An inspector tells an elderly person that he
or she need many thousands in repairs or the home will collapse. Many cannot afford these “repairs,” but the
scammer refers them to a home equity mortgage lender who arranges the reverse
mortgage (even though the repairs are bogus or not necessary), taking huge fees
from the unsuspecting owner desperate to fix the home.

Finally,
some of the biggest critics are the children, who discover after their parents
die that their house inheritance is worthless due to a reverse mortgage debt
greater than the value of the home. Because of these issues, and the high
default rate of nearly one in ten homes, HUD tightened lending requirements
earlier this year to ensure that lenders carefully review borrowers’ financials
to be sure they can continue to pay taxes and insurance required on the
home. In some cases, loans that used to
be granted are now denied, and in other cases the amount loaned will include a
required set-aside for payment of taxes and insurance, reducing the amount
available to the homeowner.

A reverse
mortgage can be a great tool for many homeowners, but it is a program that
should be carefully reviewed to ensure that it fits an individual’s needs.
Discussions with a CPA, your children and a HUD loan counselor are a must
before taking out a reverse mortgage.

Michael J Posner,
Esq., a partner in Ward Damon a mid-sized real estate and business oriented law
firm serving all of South Florida, with offices in Palm Beach County. He serves as the HUD Foreclosure Commissioner
for the state of Florida. They can be
reached at 561.594.1452 or by e-mail at mjposner@warddamon.com

About Me

I am a Florida Board Certified Real Estate Attorney with 30+ years of residential and commercial real-estate experience.
I am an equity partner in Ward, Damon, Posner, Pheterson & Bleau, a mid-sized law firm serving all of South Florida, with three offices in Palm Beach County. Our firm specialize in and can assist in buying, borrowing and selling property throughout South Florida. I can be reached at 561.594-1452, mjposner@warddamon.com or www.warddamon.com